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Libya's economic outlook: Oil fuel for future investments

Special series "Towards a new Libya?" Part 5 of 6

Written by Frédéric Dubessy on Thursday, April 15th 2021 à 18:25 | Read 538 times

Libya's foreign exchange reserves and oil windfall have returned to pre-revolution levels, allowing it to invest in its future. The 2021 budget under discussion reveals the priorities of the new governance.

LIBYA. Accurate figures on the Libyan economy are hard to come by. The lack of statistical tools, the partition of the country, the stoppage of investments, and years of internal conflict do not make it easy. According to the latest available figures from the World Bank, the Gross Domestic Product (GDP) was $52.09 billion (€43.78 billion) and the Gross Net Income (GNI) per capita was $7,640 (€6,421) in 2019. In a report on Libya's economic outlook released in early 2021, the African Development Bank (AfDB) states that "Libya's fiscal and current account balances deteriorated significantly in 2020, with deficits corresponding to 73.8% of GDP and 59.8% of GDP respectively, erasing the surpluses recorded in 2019." At the same time, and still according to this source, "foreign exchange reserves have also declined from $77bn to $63bn (€64.3bn to €52.6bn) in June 2020, the lowest level recorded since 2016, and equivalent to fifty-eight months of imports."
This led the Libyan Central Bank (CBL), at the end of December 2020 with effect from 3 January 2021, to devalue the dinar to readjust its rate against the dollar. This ratio has thus increased from 1.34 dinar for 1 dollar to 4.48 dinar for 1 dollar. The operation has resulted in a rate substantially in line with that practiced on the parallel market.
It was necessary to try to curb inflation while the price of basic necessities increased by more than 50% in 2020. Despite this and two civil wars, the Libyan dinar remains the strongest currency on the African continent against the dollar. It precedes the Tunisian dinar, the Ghanaian cedi and the Moroccan dirham. This is the result of the strict policy still pursued by the CBL which limits the sale of dollars to its citizens, but also of the resumption of oil exports, the true barometer of the Libyan economy.
The sale of black gold "is expected to grow by 37.5 per cent in 2021 and 54.9 per cent a year later. The budget and current account balances are also expected to improve by 8.9 percent of GDP and 31.2 percent of GDP respectively, thanks to the projected increase in oil revenues and exports in 2021. Inflation is expected to reach 10.5 percent in 2021 due to the depreciation of the domestic currency and continued supply constraints," the AfDB says.


2021 budget under discussion

On the desk of the new Libyan Prime Minister Abdel Hamid Dbeibah is a draft budget 2021. It will be, very soon, probably Monday, April 19, 2021 during a plenary session, in discussion in Parliament. Some elements, consulted by, have leaked. Produced a month ago, these documents show that the Government of National Unity (GNA - former governance) was counting on a budget of 96.13 billion Libyan dinars (€17.9 billion), of which 22.24 billion would be devoted to investments. These would be divided mainly between the oil sector for 7.5 billion dinars (€1.40bn) and the electricity company for 4.5 billion dinars (€800m).
A huge sum, while the year is already well underway in mid-April. And before the revolution, Libya was struggling to complete investment budgets of 6 to 7 billion per year.
The planned budget is divided into five main chapters: civil servants' salaries (33.3 billion dinars), subsidies (23.61 billion), government operating expenses (11.98 billion), investments (22.24 billion) and emergency spending (a vast catch-all of 5 billion dinars). In January 2021, after a revision, these figures fell to 32, 11, 17, 17 and 5 billion Libyan dinars respectively.
"It would take a decade to achieve these investments! The Finance Committee of the Parliament will reject this draft budget and ask for a reduction of the ambitions", reveals a fine connoisseur of the Libyan economy, who wishes to remain anonymous. Often on mission in the country, he believes that "the government will not have time by the end of the year to spend all this money." According to several specialists in the Libyan economy, the 2021 budget could end up at 78.5 billion Libyan dinars (€14.6 billion).
The fact remains that in any case, without a real state, the implementation of this budget, whatever the final amount, raises questions.

Since 2015 and its installation, the GNA has had to deal with two parliaments. The first is based in Tripoli (west of the country) and is the result of the 2012 elections, while the second is a dissident parliament in Tobruk (east). The latter based its legitimacy on the new legislative elections of 2014, which had a very low turnout. This parliament was not recognized by the parliament in the capital (which only played an advisory role), nor by the GNA. Faced with this situation, Fayez al-Sarraj, who held the posts of President and Prime Minister, had to deal with ersatz budgets, officially called "financial arrangements. The French translation, "arrangements financiers", could not be clearer than the practices ... "Clearly, everything was outside the law", summarizes one of our interlocutors on site. In January 2021, the NGO Transparency International ranked Libya 173rd (168th in January 2020 and 170th in January 2019) out of 180 countries studied, in its Corruption Perception Index (CPI).

Water and electricity: two priority investments

Libya - here a new tank at the Ras Lanuf site - has 45 billion barrels of oil reserves (photo: NOC)
Libya - here a new tank at the Ras Lanuf site - has 45 billion barrels of oil reserves (photo: NOC)
The next budget will at least have the merit of covering the whole country and allowing emergency investments (Covid-19, electricity, oil, organization of elections). However, the 2022 budget will have to be prepared very quickly.
In 2020, a study financed by the European Union and carried out with the World Bank, the United Nations and USAID (United States Agency for International Development) identified priority investments, focusing in particular on water and electricity, where supply difficulties are increasing due to the obsolescence of infrastructure.
Based on these recommendations, an agreement between the World Bank, the United Nations Support Mission in Libya (UNSMIL), the United Nations Development Programme (UNDP), USAID and the Libyan Local Investment and Development Fund (LLIDF) was signed in August 2020. It concerns several small photovoltaic power plants to supply pumping stations drawing on the non-renewable aquifers of the Nubia Basin. Installed along the Great Man-Made River in Libya (an underground pipeline more than 3,000 km long), they would improve the supply of drinking water in the region while limiting the use of traditional oil-fired electricity. Regular power cuts can exceed 24 hours. In 2020, Libyans even took to the streets in protest. USAI estimates that 70% of the Libyan population uses drinking water from this Great Man-Made River.
While this work will take time, the above-mentioned study also envisages easier and faster measures to be implemented to avoid consumption peaks. Such as coordination, which is currently non-existent, between the large state-owned companies (particularly the cement and iron factories) to share out production slots.


The NOC reigns over the oil sector (photo: NOC)
The NOC reigns over the oil sector (photo: NOC)

Libya's renewal is based on a ten-year-old plan

"Didn't Talleyrand succeed in becoming foreign minister to Louis XVIII after serving Napoleon and representing France at the Congress of Vienna charged with rebuilding the continent after the destruction of the political system he had powerfully served?" Henry Marty-Gauquié summons history to the rescue to better emphasize that the cards can sometimes be reshuffled in surprising ways. The honorary director of the European Investment Bank mentioned the possibility that one of the former Libyan leaders who had been ousted might come back to power through the front door.
And he didn't think he was saying it right! The new Libyan Prime Minister, who has the onerous task of laying the foundations for the reconstruction of his country, used to run the Libyan Investment and Development Company (Lidco) under Muammar Gaddafi. This sepia-toned picture of the past takes on new colors today in light of a fact that has since been buried and unearthed during our investigation. In these former functions, Abdel Hamid Dbeibah was responsible for serving the ambitions of a document called "Libya of tomorrow" ("Libya al-Ghad"). A text prepared in 2007 by a certain Saïf al-Islam, the Guide's second son, and supposed to become his round table as potential successor to his father.
A counterpart to the Green Book published in 1977 by his father, laying the foundations of the "Socialist People's Libyan Arab Jamahiriya", the official name of Libya at the time, and serving as the country's constitution.
The new cuisine of the new Libya could be based on this "Libya al-Ghad" menu, more than ten years old and advocating a liberalization of the country from three angles: economic (development based on Lidco), social (freedom of the press, human rights ...) and political (rapprochement with the Muslim Brotherhood).
If history repeats itself, the boss of Lidco, now Prime Minister, will have to adapt his recipe to the taste of the day. And in particular, he will have to add a few ingredients such as a big ladle of transparency in public spending and a good dose of decentralization. The whole thing will also need a good sauce based on administrative control and harmonization to bind it together. "For public finances, everything is done manually, without computers, and then the money is distributed among the ministries. Each one then makes its Excel table as it sees fit to bring up what is invested", says an expert in the field. In short, it is becoming urgent to establish a real State, and an efficient administration.

The NOC, a state within a state

"The sharing of oil revenues and the fight against corruption, which is at the root of most of the clashes, seems to me to be central to the future of Libya," says Jean-François Coustillière. The fact remains that "without oil, there is no income", says our anonymous expert. Thus, oil and gas are supposed to bring 89 billion Libyan dinars (€16.5 billion) in the draft 2021 budget of 96.1 billion. As a result, as soon as oil exports are frozen, the entire Libyan economy catches a cold. "Domestic debt has increased considerably in recent years, reaching 155% of GDP in 2020," confirms the AfDB.

Since the 1950s, when the first discoveries were made, oil revenues have fed the Libyan people, 7 million people, excluding the 585,000 migrants and refugees. Under Gaddafi, Libya had the highest GDP per capita on the African continent. This windfall allowed the country to have one of the lowest external debts in the world (5.8% of GDP in 2017).
Two civil wars have ravaged the country, with the main issue being the control of these resources, 80% of which are located in the Gulf of Sirte, the Guide's home region. 90% of Libya's oil exports are made from this coast.
Created in November 1970 and managing the entire hydrocarbon sector, the NOC (National Oil Corporation) comprises twelve companies which it owns 100% and has shares (joint ventures) in seven others. Based in Tripoli, this public company, a true state within a state, was for two years (2014-2016) divided into two branches, one dependent on the GNA, the other on the East where the dissident parliament was located. But very quickly, it was reunited. This did not prevent Marshal Khalifa Haftar to take hostage, on multiple occasions, the export terminals on multiple occasions, from September 2016 to August 2020. Until closing for seven months the taps to weaken his rival Fayez al Sarraj by cutting him off. This last forced pause in hydrocarbon exports would have cost €8.32 billion in lost revenue according to the NOC. In early 2021 in its aforementioned report, the AfDB estimated that "the closure of oil fields has led to a sharp decline in exports which, combined with low oil prices, has resulted in an estimated loss of revenue of at least $10bn (€8.4bn)."

Oil production increased tenfold in a few months

In September 2019, Mustafa Sanalla, president of the NOC since 2016, indicated "rejecting any attempt to partition and politicize the Libyan oil sector to serve narrow interests and foreign agendas." A clear warning, while a project to separate one of its subsidiaries, the Brega Petroleum Marketing Company (BPMC) was on the table. The pretext given was the inadequate supply of fuel to the eastern region. "The real reason for this attempt is to set up a new illegitimate entity for the illegal export of oil from Libya," said the NOC chairman. "Let's be clear, if the NOC loses its oil export monopoly, the future integrity of Libya is seriously threatened. It is disappointing that the people behind this attempt to divide the nation are putting their personal ambitions ahead of the unity and integrity of the country," he said, demonstrating his company's desire for independence from politics.
Since the signing of the permanent ceasefire in October 2020, Libyan production is gradually returning to its pre-revolution levels, when Libya was the seventeenth largest oil producer in the world. It increased tenfold between the third quarter of 2020 and the end of December 2020, with 1.224 million barrels per day. The progression will continue, especially since on Thursday, April 1, 2021, the Opec (Organization of Petroleum Exporting Countries - 23 member states including Libya) decided to increase Libya's production from next month (350,000 barrels more per day in May and June and 441,000 in July). Its reserves are estimated at about 45 billion barrels, they are the largest on the African continent.
According to one of our experts, who prefers to remain discreet, production has now reached 1.3 million barrels per day. That is, more or less, the figure for December 2009 before the first civil war. "This is already good, because the necessary investments have not been made for ten years in this sector and this poses problems on the functioning of the infrastructure," he said.

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Thursday, April 15th 2021 - 15:34 Libya's economic outlook: A huge cake to share


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